Banks urged to act after new international laws targeting fraud lead to accounts misery for city business groups and investigation by watchdog

HSBC is mulling a series of initiatives to streamline and improve the vetting process for opening company accounts in the city.

It follows a flood of complaints from those having trouble obtaining bank services due to tighter international anti-fraud regulations, the Post has learned.

Owing to the gravity of the ­situation and the risks posed to the ­local economy, Chief Secretary Carrie Lam Cheng Yuet-ngor has told the Hong Kong Monetary Authority (HKMA), the banking regulator, to investigate and report its findings to her.

She acted after hearing the pleas of the city’s 29 international chambers of commerce at a ­conference last month. They warned that the very existence of ­several small and medium enterprises was in doubt.

“Chamber representatives raised a number of concerns about the difficulties encountered by foreign businesses and their members in opening, as well as ­retaining bank accounts in Hong Kong,” a spokeswoman for Lam told the Post.

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Sara Kwok, head of the HKMA banking conduct department, said it planned to issue guidelines to banks on the opening of ­accounts, aiming to strike a ­balance ­between meeting regulatory ­requirements and serving the public. It had talked to “one to two international banks” in April about the situation.

The chambers joined forces after a number of members complained of being turned away when trying to open business ­accounts and of accounts being closed without reason.

The Post, under conditions of anonymity, spoke to four trust companies that help investors set up in Hong Kong.

They revealed that over the past year about 300 clients had their applications to open business ­accounts rejected at the first attempt. There were more than 100 cases of accounts being closed.

Accusing some leading banks of going “overboard” with due ­diligence, they said some adopted “one size fits all”, and a rigid “tick-box” approach to vetting their ­clients’ applications.

They all agreed that the problem was particularly serious with leading global lenders, including HSBC, Standard Chartered Bank and Hang Seng Bank with start-ups rejected the most.

In an exclusive interview, George Leung Siu-kay, adviser to HSBC Asia-Pacific, admitted banks such as HSBC had tightened requirements for opening accounts and were also monitoring existing accounts to guard against financial crimes.

Unlike in the past, when opening and retaining an account was seemingly hurdle free, customers now must make greater ­disclosure of their operations, ­including sources of wealth, ­details of business partners and development plans, together with supporting documents.

This is in order to comply with anti-fraud regulations imposed by foreign governments over the past few years, including the ­Foreign Account Tax Compliance Act in the United States, and the international anti-money laundering and counterterrorist financing laws.

Banks face huge fines if found to have failed the relevant compliance checks.

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“There is a global consensus that banks are the best gatekeeper against these unlawful activities. Therefore foreign governments believe that banks, especially global banks, have a responsibility to monitor and track down any suspicious accounts and irregular activities,” Leung said.

“We’ve tightened our regulatory requirements in response to the requests of foreign governments. Indeed, there have been many cases of Hong Kong bank accounts being used to channel funds elsewhere, as revealed in the leaked Panama Papers. We need to be mindful of this.”

However, Leung denied HSBC was “overly stringent” in vetting applications, saying many ­customers were not used to the new rules and were reluctant to ­disclose business details, citing privacy and confidentiality.

Chances were high that applicants would be rejected if they failed to provide the necessary ­information and supporting documents.

Of the 100 cases recently ­rejected by the bank, only 10 per cent were considered to be of high risk. The others either failed to proceed with their applications or failed to provide sufficient information and documents.

“No banks will do things more than required and necessary. Who would like to ‘overdo’ it at the price of driving away business and incurring higher compliance costs?” Leung asked.

“We just do what we are told otherwise we will face huge fines. This policy applies consistently everywhere in the world, not just Hong Kong.”

However, he admitted frontline staff without proper communication may be too rigid when handling applications from ­customers, causing a lot of ­misunderstanding.

“This is a new thing for us. There is no precedent of how we should implement the new rules and comply with the global standards. What we try to do is to improve ourselves through the feedback of our customers,” he said.

To answer clients’ queries and to study ways to improve customer services, HSBC would hold a closed-door forum to have a direct dialogue with the chambers’ complainants and other concerned parties.

It aims to introduce various initiatives to streamline ­vetting procedures to make it easier for SMEs to open accounts, and to provide an appeal channel for rejected customers. Training would also be given to frontline staff on how to handle cases with flexibility and better communication.

“We will set up a special unit to streamline the process for SMEs and conduct questionnaires for customers about their banking experiences. We will set up ­another special unit to review complaints in a flexible way, i.e, a one-stop shop to handle the appeals of clients,” Leung said.

However, he said there should be a change of mentality across all spectrums of society about tighter banking requirements, especially from SMEs, adding that greater mutual trust was needed for customers to be cooperative in making disclosures.

“We want to give the public a message that we need to do this because this is good for Hong Kong as a clean international financial centre, and also good for fraud protection,” Leung said.

He also dismissed rumours that HSBC required proof of an annual turnover of US$15 million from customers’ mother companies before considering opening accounts for them. Nor did it seek to drive away low-yield clients by closing their accounts to offset the huge compliance costs.

“These rumours are entirely not true. Many people wonder if HSBC doesn’t want to do business anymore by turning away low-yield accounts. I can tell you there is no such thing at all,” he said.

“In fact, there are successful cases of small companies opening an account with a capital of only a few hundred thousand dollars. As long as you can show that you are doing a lawful business with proof of your source of money and business partners, there will not be any problem in opening a company account at HSBC.”

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The Belgium Luxembourg Chamber of Commerce in Hong Kong is aiming at creating a platform for companies and people. We provide assistance to members and new comers regarding business doing in Hong Kong thanks to our experience and extensive business network.